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International
Trade
Theory
&
Policy:
•International
Trade:
exchange
of
goods
and
services
between
economic
agents
within
different
sovereign
states
o Special
Features:
§ Goods
cross
borders
(trade
barriers
or
other
limitations)
§ Transactions
involve
different
currencies
(a
system
to
convert
them
is
necessary
and
there
has
to
be
a
exchange
rate)
• Actions
of
the
governments
o Against:
Protecting/
promoting
international
industries
§ Limiting
exports
§ Subsiding
exports
o Pro:
remove
of
barriers
(free
trade
areas,
regional
trade
agreements:
WTO)
• Consequences:
o Less
technologically
advanced
countries
fear
that
they
wont
be
able
to
compete
o Technologically
advanced
nations
fear
that
trade
with
lower
wage
countries
will
lower
their
life
standards.
• Reasons
to
trade:
o To
take
advantage
of
the
differences
between
countries
(comparative
advantages,
factors
of
production)
o Specialization
+
exchange
is
the
alternative
to
autarky
o Economies
of
scale:
producing
goods
at
a
larger,
more
efficient
scale
• Kinds
of
trade:
o Classical
Theory
§
Comparative
advantages:
implies
that
every
country
can
gain
from
trade
by
finding
a
place
in
the
international
division
of
labor
§ Absolute
advantage:
clear
difference
on
who
should
do
what
§ Comparative
advantage:
not
that
clear.
• A
country
has
a
comparative
advantage
at
producing
a
good
when
the
opportunity
cost
is
lower
than
to
other
countries
• When
the
term
of
trade
is
1
both
countries
will
specialize.
• BUT
it
doesn’t
consider
factor
mobility
• BUT
it
doesn’t
consider
tensions
derived
from
trade
§
Factors
of
production:
Differences
based
on
resources,
not
productivity
• Emphasis
on
the
proportion
of
resources
(availability
of
factors
of
production)
• Capital-­‐intensive
countries:
are
the
ones
that
invest
a
lot
in
technological
innovation,
equipment,
high
skilled
labor,
etc.
• The
abundant
factor
ends
up
better
off
and
the
scarce
one
ends
up
worse
off.
o New
Trade
Theory:
explains
a
growing
trend
of
intraindustry
trade.
§ Intraindustry
transactions
are
opposite
to
interindustry
trade
• Interindustry:
reflects
comparative
advantage
• Intraindustry
trade:
countries
with
similar
capital-­‐labor
ratio
produce
differentiated
products.
Advantages:
• Consumers
gain
wider
variety
of
products
o Horizontal
differentiation
(different
features)
o Vertical
differentiation
(different
quality
and
price
range)
• Pro-­‐competitive
effect:
opening
of
the
market
increases
the
effect
of
competition.
§ Implications:
advanced
technologies
+
critical
mass
with
purchasing
power
• Of
interindustry
trade:
negative
income
distribution
impacts
• Of
intraindustry
trade:
o Lower
costs
and
higher
efficiencies
à
economies
of
scale
o Doesn’t
imply
social
conflict
§ Intraindustry
trade
is
not
exclusive
for
industrialized
countries
(Disintegration
of
the
production
chain)
§ Economic
and
commercial
integration
o Trade
Policy:
§ Liberalism
vs.
protectionism
• Liberalism:
opening
free
markets
o Efficiency
gains
linked
to
comparative
advantage
• Protectionism:
discriminating
against
foreign
products
o Allows
national
companies
to
grow
initially
in
a
protected
environment
from
competitors
(infant
industry
argument)
o Social
and
environmental
dumping
§ Lower
wages
of
unskilled
workers
in
developing
countries
bring
down
the
wages
of
the
ones
in
develop
countries)
§ More
relaxed
environmental
standards
§ Effects
of
tariffs
(tax
applied
when
a
good
is
imported
à
provides
revenue
and
protects
particular
domestic
sectors)
• They
create
inefficiencies
§ Export
subsidies:
a
payment
from
the
government
to
a
firm
that
exports
to
foreign
markets.
§ Import
quotas:
restrictions
of
the
quantities
imports,
raises
the
domestic
prices
and
the
government
doesn’t
get
any
revenue.
§ Voluntary
export
restraints
(not
that
common):
a
quota
on
trade
imposed
by
the
exporting
country
at
the
request
of
the
importer.
o Process
of
Liberalization:
economic
order
designed
that
allows
traders
to
trade
across
national
boundaries
without
interference
from
the
respective
governments
§
...